It is essential to set up a good record keeping system to keep track of your income and outgoings, and to keep those records safely.

This is equally true of rental income, of course, but in the case of trading records, you are required to keep the records until the fifth anniversary of the 31 January after the end of the tax year – so for 2006/07, the records must be kept until at least 31 January 2013.
A trader’s accounts must be prepared on the accruals basis, but unlike a property investor, you may make up your accounts to any date you wish.

For each tax year, you will be taxed on the profits of the accounting year ending during that tax year – if your accounts are made up to the year ending 30 September, for example, for the tax year 2008/09 you will pay tax on your profits for the year ending 30 September 2008.

In the first couple of years of trading, the method is slightly different:

• First year – you will be taxed on the profits from the date you began trading to the following 5 April – so if you start trading on 1 October 2006, you will be taxed on the profits from 1 October 2006 to 5 April 2007.

If you make your accounts up to a different date, the profits will be apportioned to arrive at the correct figure for the period to 5 April.

• Second year – The profits of your first twelve months of trading

The fine detail of how profits in the early years are taxed, and the choice of the most tax-efficient accounting date, can be very complicated, and you would be wise to seek advice from your accountant or tax adviser.

This entry was posted on Monday, September 15th, 2008 at 9:49 am and is filed under Property Companies, Property Income Tax. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.